about 
SUGAR  BUYING 


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about 

SUGAR  BUYING 

for  Jobbers 

How  you  can  lessen 

business  risks  by  trading  in 

Refined  Sugar  Futures 

B.    W.    DYER 


A    BOOKLET 

FOR   JOBBERS    WHO 

SELL    SUGAR 


Lamborn   &"  Company 

SUGAR    HEADQ.UARTERS 
132   FRONT  STREET  *  NEW  YORK 


Copyright,  19«1 
LAMBORN  &  COMPANY 


About  Sugar  Buying 

JOBBERS  who  have  had  considerable  experi- 
ence in  exchange  operations  will  find  in  this 
booklet  a  simplified  and  non-technical  description 
of  activities  with  which  they  may  be  in  general 
familiar. 

We  believe,  however,  that  the  inauguration  of 
trading  in  refined  sugar  futures  on  the  New  York 
Coffee  and  Sugar  Exchange,  Inc.,  throws  open 
a  new  realm  of  opportunity. 

We  have  attempted  to  outline  briefly  the  chief 
advantages  to  be  gained  by  a  jobber's  use  of  this 
new  market,  assuming  that  those  who  have  in  the 
past  dealt  in  raw  sugar  as  a  protection  for  their 
refined  sugar  needs  will  welcome  suggestions  as  to 
the  benefits  to  be  derived  from  trading  directly  in 
refined  sugar. 


LAMBORN      &      COMPANY 


Time,  the  Croupier  of  Business 

LIKE   A    CROUPIER    at  a    vast    roulette  table, 
J  Time  presides  over  the  realm  of  business. 

Time  is  the  tap-root  of  most  business  uncer- 
tainties. 

No  one  can  tell  what  will  happen  a  year,  a 
month,  a  day,  a  minute  from  now — the  future 
may  bring  floods  and  wars,  pestilence  and  drouth ; 
or  it  may  bring  great  crops  and  fair  weather, 
happiness  and  prosperity. 

As  business  has  become  more  and  more  com- 
plicated, the  time  element  has  become  larger  and 
larger.  The  time  element  as  we  know  it  does  not 
exist  in  simple  barter — a  man  weaves  a  piece  of 
cloth  and  exchanges  it  for  a  bushel  of  corn:  time 
is  of  no  account  in  the  transaction.  A  small 
jobber  located  in  the  same  territory  as  refiners 
buys  a  small  amount  of  sugar  today  and  dis- 
tributes it  to  his  trade  the  next — time  is  negligible. 
A  large  jobber,  buying  perhaps  for  several  branch 
houses,  or  located  at  points  which  necessitate  a 


LAMBORN      &      COMPANY 


[3 

delay  of  two  or  three  weeks  in  transit,  may  find  it 
necessary  even  on  a  declining  market  to  purchase 
a  considerable  amount  of  sugar,  and,  as  a  result, 
weeks  may  go  by  before  his  sugar  arrives  and  is 
sold — time  is  vitally  important. 

Time  is  an  element  in  costs  and  prices,  because 
over  any  extended  period  of  time  many  things 
may  happen  to  influence  costs  and  prices. 

All  business  planning  must  deal  with  Time. 

To  the  unenlightened  business  man.  Time  is  a 
bugaboo — a  gambler  whose  cards  are  stacked 
and  against  whom  there  is  no  defense.  Such  a 
man  conducts  his  business  from  hand  to  mouth, 
in  constant  fear.  He  is  a  fatalist,  taking  his  profits 
and  losses  as  if  they  were  gifts  or  blows  of  Fortune. 

The  enlightened  man  works  with  Time  as  an 
impartial,  exacting,  inevitable  power  for  his  own 
good  or  ill.  He  shapes  his  actions  and  enlists  the 
services  of  Time  to  prevent  catastrophe  on  the 
one  hand,  and  to  enforce  prosperity  and  happi- 
ness on  the  other.  Storms  may  come,  but  so  far 
as  his  mind  may  control  it,  he  is  "the  master  of 
his  fate." 


SUGAR     HEADQUARTERS 


Cost  and  Selling  Prices 

THAT  the  element  of  TIME  is  important  in  the 
jobber's  business  no  one  will  deny.  He  does 
not  base  his  selling  price  on  cost,  but  rather  on  the 
market  price.  Regardless  of  his  cost,  he  must  sell 
to  meet  competition.  It  is  equally  obvious  that 
the  larger  his  business,  or  the  greater  his  distance 
from  the  source  of  supplies,  the  more  important 
part  TIME  plays  in  both  his  cost  and  selling 
prices. 

All  jobbers,  large  or  small,  are  obliged  to  assume 
greater  risks  (even  proportionately)  and  exercise 
greater  care,  than,  for  instance,  retailers  buying  in 
small  quantities.  A  jobber's  business  may  enlarge 
by  a  perfectly  natural  process  of  expansion,  but 
his  purchasing  risks  increase  in  greater  ratio  than 
his  business  expands. 

Similarly,  under  abnormal  conditions,  jobbers 
located  at  points  requiring  several  weeks  in  transit 
prior  to  delivery,  must  assume  greater  risks  than 
those  located  at  the  source  of  supply.    In  the  event 


LAMBORN      &      COMPANY 


[5 

of  serious  delays  in  deliveries  or  in  shipments,  even 
buyers  located  at  shipping  points  are  confronted 
with  this  problem,  and  the  difficulties  of  those 
located  at  a  distance  are  increased  immeasurably. 

These  difficulties  tend  to  accentuate  the  impor- 
tance of  TIME  in  modern  business.  As  business 
grows,  instead  of  decreasing — risks  increase.  Any 
machinery  which  might  operate  to  eliminate  or 
reduce  this  uncertainty  or  speculative  element  in 
a  jobber's  business,  would,  we  believe,  be  wel- 
comed.   Exchanges  provide  just  such  machinery. 

Other  commodities,  such  as  raw  sugar,  wheat, 
cotton,  pork  and  coffee  have  had  this  machinery 
for  years  and  it  was  provided  for  refined  sugar 
on  May  2,  1921,  when  trading  in  refined  sugar 
futures  was  inaugurated  on  the  floor  of  the  New 
York  Coffee  and  Sugar  Exchange,  Inc. 


SUGAR      HEADQUARTERS 


Where  Buyers  and  Sellers 
of  Sugar  Meet 

THE    SUGAR    EXCHANGE   is  a    market  place, 
where  buyers  and  sellers  of  sugar  or   their 
representatives  meet  to  trade. 

The  Exchange  provides  a  concentration  point, 
where,  under  any  market  conditions,  sugar  may 
be  bought  or  sold  at  a  'price. 

What  that  price  is,  is  determined  by  how  much 
sugar  is  for  sale  and  how  many  people  want  it. 
If  the  supply  is  large  and  buyers  are  few,  the 
price  will  be  low.  If  sugar  is  scarce  and  buyers 
are  numerous,  the  price  will  be  high.  Or,  to  put 
it  in  another  way,  when  there  are  more  sellers 
than  buyers,  the  market  declines;  when  more 
buyers  than  sellers,  it  advances.  If  the  supply  and 
the  number  of  buyers  are  normally  well  balanced, 
the  price  will  be  determined  largely  by  the  cost 
of  production  and  transportation.  If  events  or 
circumstances  operate  to  increase  or  curtail  either 
the  sugar  supply  or  the  number  of  buyers,  and 


LAMBORN      &      COMPANY 


[7 

such  events  or  circumstances  follow  one  after  the 
other  alternately,  the  price  will  fluctuate. 

These  are  the  results  of  the  operation  of  well- 
known  economic  laws. 

In  the  case  of  all  commodities  which  cannot  be 
bought  or  sold  at  a  common  market  place  (or  ex- 
change), price  fluctuations  are  usually  wide  and 
frequent,  because  no  large  group  ever  has  com- 
mon knowledge  of  supply,  demand  and  other 
factors  that  govern  prices — purchases  and  sales 
are  made  direct  between  individuals,  and  knowl- 
edge of  the  amount  asked  or  paid  is  restricted  to 
a  limited  few. 

Through  the  common  market  place  provided 
by  an  exchange,  on  the  other  hand,  market  condi- 
tions and  prices  become  common  knowledge  al- 
most instantly  over  the  entire  country.  This 
tends  toward  stabilization — a  fact  which,  alone, 
helps  to  eliminate  risks,  and  enables  merchants 
to  buy  at  lower  prices  than  if  forced  to 
deal  direct  with  one  another.  Sellers  do  not  have 
to  take  such  long  chances  and  can  thus  afford  to 
sell  on  a  smaller  margin  of  profit.  Competition 
is  stimulated  and  freed  from  many  of  its  compli- 
cations and  uncertainties  to  the  advantage  of  the 
seller,  the  buyer  and  the  public. 

It  is  now  admitted  that,  had  exchange  trading 


SUGAR      HEADQUARTERS 


8] 

in  refined  sugar  existed  in  1920,  a  general  use  of 
the  exchange  by  all  branches  of  the  trade  might 
have  prevented,  to  a  considerable  extent,  the 
abnormal  advance  in  sugar  prices  of  that  period, 
with  the  hardship  and  misfortune  that  attended. 

The  fact  that  an  exchange  always  provides  a 
buyer  and  a  seller,  at  a  price,  tends  toward  keeping 
business  fluid.  Jobbers  are  able  to  protect  their 
future  requirements.  Producers  are  sure  of  a 
market  for  their  crops.  Crop  financing  is  made 
easier  because  bankers  are  more  willing  to  loan  on 
crops  sold  in  advance — an  operation  made  possible 
by  an  exchange. 

Exchanges  operate  to  take  the  gamble  out  of 
business.  They  help  to  put  and  maintain  busi- 
ness on  a  sound  basis.  That  some  people  who 
have  no  real  interest  in  the  commodity  use  the 
exchange  speculatively  does  not  alter  this  fact. 

In  providing  machinery  by  which  speculative 
risks  incident  to  a  jobber's  business  may 
be  shifted  from  the  jobber  to  those  who  make 
a  business  of  assuming  such  risks,  exchanges 
help  to  stabilize  his  business  and  to  remove  a 
large  part  of  the  destructive  uncertainty  with 
which  he  would  otherwise  have  to  contend. 

Exchanges  are  the  creations  of  modern  eco- 


LAMBORN      &      COMPANY 


[9 
nomic  development,  designed  and  operated  for 
the  benefit  of  the  commerce,  industry  and  people 
of  the  civilized  world. 

Therefore  we  welcome  trading  in  refined  sugar 
futures  and  the  opportunity  to  offer  you  the  ad- 
vantages that  may  be  derived  from  a  conserva- 
tive, intelligent  use  of  its  services. 

The  Exchange  provides  certain  quality  stand- 
ards and  other  regulations  to  safeguard  your 
interests.  But  your  real  assurance  of  protection 
lies  in  the  character  and  reliability  of  your 
broker.  If  your  broker  is  not  strong  financially 
you  do  not  have  back  of  your  contract  the  re- 
sponsibility that  you  might  otherwise  have. 

If  you  had  a  favorable  contract  with  a  broker 
who  became  insolvent,  you  would  have  no  means 
of  forcing  the  fulfillment  of  the  contract,  and  no 
way  of  securing  the  profit  which  was  due  you. 
The  thing  to  do,  of  course,  is  to  choose  a  broker 
who  is  so  strong  financially  that  you  incur  no 
danger  in  this  respect  whatsoever. 


SUGAR      HEADQUARTERS 


Use  the  Exchange  when  the 
Market  is  Favorably  out  of  Hne 

IN  considering  the  illustrative  examples  in  this 
booklet,  it  should  be  borne  in  mind  that  the 
measure  of  protection  afforded  is  relative  and  not 
absolute.  The  theory  of  exchange  operations  is 
that  the  exchange  market  will  move  relatively  the 
same  as  the  market  for  the  actual  commodity. 

This  cannot  be  strictly  true,  although  the 
exchange  market  must  of  necessity  follow  very 
closely  the  actual  market,  because  all  the  sugar 
must,  in  the  final  analysis,  come  from  the  actual 
market.  If  thrown  out  of  parity  with  the  actual 
market,  the  exchange  market  is  bound  to  come 
back  eventually. 

In  the  exchange  market  anyone  can  buy  and 
anyone  can  sell.  The  market  is  subject  to  many 
outside  influences,  and  the  fluctuations  reflect 
and  accentuate  the  varying  shades  of  market 
opinions  of  many  individuals.    But  in  the  market 


LAMBORN      &      COMPANY 


[11 

for  the  actual  commodity,  the  quotations  are 
made  by  comparatively  few  men,  which  means 
that  there  will  be  less  fluctuation. 

Therefore,  it  is  obvious  that  although  the  ex- 
change market  should  be  on  a  parity  with  the 
actual  market,  the  unequal  fluctuations  of  the 
two  markets  will  be  constantly  throwing  them  out 
of  parity  or  "out  of  line." 

There  are  times  when  the  market  will  be  so  out 
of  hne  that  the  buying  of  futures  should  result 
profitably.  At  other  times,  with  conditions 
reversed,  selling  of  futures  seems  obviously  advis- 
able. We  do  not  claim  that  jobbers  can  protect 
sugar  purchases  with  absolute  and  exact  precision. 
On  the  basis  of  long  exchange  experience,  we  do 
believe,  however,  that  by  a  discreet  use  of  the 
Exchange,  and  by  using  the  market  when  quota- 
tions are  favorably  out  of  line,  jobbers  can  do  so  to 
their  decided  advantage. 


SUGAR      HEADQUARTERS 


Selling  of  Futures — Hedging 

As  THE  WORD  ITSELF  indicates,  a  "hedge"  on 
,  the  Exchange  is  a  protection. 

You  hedge  by  buying  or  owning  actual  sugar, 
and  "selHng  short"  in  the  same  amount.  You  sell 
sugar  futures  although  you  do  not  own  any.  You 
actually  contract  to  deliver  an  amount  of  sugar 
during  a  specified  future  month  at  a  specified 
price. 

Eventually,  you  must  either  buy  and  deliver 
actual  sugar  to  carry  out  this  contract,  or  you 
must  buy  another  contract  for  futures  to  cancel 
your  short  sale.  This  is  known  as  a  "covering" 
operation,  and  the  cancelling  of  one  by  the  other 
takes  place  automatically  through  the  channels 
of  the  Exchange. 

From  the  jobber's  point  of  view,  the  opera- 
tion of  hedging  has  three  outstanding  purposes. 
He  may  hedge: 

1.  To  eliminate  the  probability  of  speculative 
profit  or  loss,  due  to  market  fluctuations. 


LAMBORN      &      COMPANY 


[IS 

2.  To  protect  a  profit  on  a  favorable  purchase 
of  actual  sugar. 

3.  To  establish  and  limit  a  loss  on  an  unfavor- 
able purchase  of  actual  sugar. 

HEDGING  to  protect  a  normal  jobbing  profit 
by  eliminating  the  probability  of  a  speculative 
loss  or  gain. 

This  operation  is  particularly  useful  to  jobbers 
with  whom  conditions  are  such  that  they  desire 
to  be  assured  that  their  cost  will  be  at  about  the 
market  price  at  the  time  they  dispose  of  their 
sugar,  regardless  of  whether  the  market  be  higher 
or  lower. 

Although  there  are  times  when  any  jobber,  no 
matter  where  located,  will  find  this  a  useful  trans- 
action, it  is  obvious  that  many  buyers  will  not 
wish  to  use  the  market  in  this  way  unless  they  feel 
it  will  decline.  But  it  is  particularly  of  advantage 
to  a  jobber  located  in  markets  necessitating  a  delay 
of  from  one  day  to  several  weeks  in  transit. 

For  instance,  on  a  certain  day  in  April,  two 
jobbers  bought  their  usual  quantity  of  sugar. 
One  was  located  in  Syracuse,  the  other  in  New 
York.  Two  days  following  the  purchase,  the 
market  broke  half  a  cent  per  pound.    In  view  of 


SUGAR      HEADQUARTERS 


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[15 

the  fact  that  his  sugars  were  still  in  transit  when 
the  market  decHned,  the  Syracuse  buyer  was 
obhged  to  sustain  this  entire  loss,  in  order  to  meet 
competition.  On  the  other  hand,  because  he 
received  and  distributed  the  sugar  before  the 
market  broke,  the  New  York  jobber  was  able  not 
only  to  avoid  a  loss,  but  make  his  regular  profit. 

Naturally  the  greater  the  amount  of  sugar  any 
one  concern  may  have  in  transit  the  greater  the 
need  for  protection.  We  call  this  kind  of  trans- 
action particularly  to  the  attention  of  buyers 
having  branch  houses  who  find  themselves  obliged 
to  make  relatively  large  purchases  to  supply  their 
trade  in  the  face  of  a  market  in  which  they  have 
no  confidence. 

These  disadvantages  at  which  out-of-town 
buyers  are  sometimes  placed  might  be  overcome 
by  using  the  Exchange.  On  the  other  hand,  when 
refiners  are  badly  behind  on  deliveries,  even  buyers 
located  at  the  source  of  supply  will  find  themselves 
facing  a  similar  problem  the  solution  of  which 
may  be  found  in  a  use  of  the  Exchange. 

It  is  therefore  evident  that  the  selling  of  futures 
may  be  a  transaction  the  sole  purpose  of  which  is 
to  eliminate  speculation  from  a  jobber's  business. 

Regardless  of  how  careful  a  buyer  may  be,  there 


SUGAR      HEADQUARTERS 


16] 

is  an  element  of  speculation  in  each  purchase  of 
actual  sugar. 

If  the  price  goes  up,  there  is  a  speculative  gain — 
the  sugar  is  worth  more.  But  if  the  price  goes 
down,  the  buyer  sustains  a  speculative  loss. 

The  measure  of  protection  afforded  by  the 
Exchange  will  appeal  to  those  jobbers  who  wish 
to  reduce  the  speculative  element  in  their  business. 

In  the  example  immediately  following,  as  in  all 
others,  we  have  not  taken  into  consideration  the 
difference  between  the  Exchange  quotations  and 
the  Seaboard  Refiners'  quotations,  which  is  ex- 
plained on  page  38.  This  would  simply  inject  an 
unnecessary  complication,  and  would  be  of  no 
particular  advantage  for  purposes  of  illustration. 

Suppose  you  should  buy  through  your  broker 
from  a  refiner,  for  prompt  shipment,  an  amount  of 
actual  sugar  at  6.00,  which  you  plan  to  sell  within 
a  short  time  after  its  receipt.  Instead  of  worrying 
about  subsequent  sugar  price  fluctuations,  you 
simultaneously  hedge  this  purchase  by  selling 
futures  in  the  same  amount  on  the  Exchange.  The 
price  at  which  you  buy  actual  sugar  and  the  price 
at  which  you  sell  futures  should  be  relatively  the 
same,  since  Exchange  prices  generally  reflect 
refiners'  prices. 


LAMBORN      &      COMPANY 


[17 

You  should  be  able  to  figure  the  cost  of  your 
sugar  at  about  the  market  price  at  the  time  it  is 
received  or  sold.     (See  Chart  1.) 

If  the  price  of  sugar  should  go  down  to  4.00  at 
about  the  time  when  you  sell  it,  your  actual  sugar, 
for  which  you  contracted  to  pay  6.00,  would  be 
worth  only  4.00;  but  you  would  then  buy  to  cover 
your  futures  sale,  making  2.00  on  this  transaction, 
which,  subtracted  from  the  price  you  paid  (6.00), 
brings  the  cost  down  to  the  market  price  of  4.00. 
In  other  words,  you  have  accomplished  your  pur- 
pose of  being  able  to  figure  your  sugar  cost  at  the 
market  price  at  the  time  when  you  received  it  (or 
at  the  time  you  sell  it).  That  is,  although  every 
pound  of  actual  sugar  was  sold  at  a  loss,  this  loss 
was  balanced  by  the  profit  from  your  hedge. 

If,  on  the  other  hand,  the  market  should  ad- 
vance to  8.00  after  your  original  purchase  and 
hedge  at  6.00,  the  value  of  your  actual  sugar 
would  be  increased  by  2.00.  You  would  then  buy 
futures  at  8.00  to  cover  your  short  sale  at  6.00, 
netting  a  loss  thereby  of  2.00.  This  loss  would  be 
added  to  your  original  cost  of  6.00,  making  your 
actual  sugar  cost  8.00,  which  is  the  market  price 
at  the  time.  Had  you  omitted  the  hedge,  your 
sugar  would  have  cost  you  only  6.00,^but,  in  this 
example  we  are  assuming  that  you  would  sell  only 


SUGAR  HEADQUARTERS 


18] 

when  you  were  willing  to  figure  your  sugar  cost 
at  the  market  price.  This  you  have  accomplished 
by  foregoing  the  speculative  profit  you  might  have 
made  in  favor  of  your  normal  jobbing  profit. 

If  the  market  should  remain  relatively  stable 
you  would  buy  to  cover  your  hedge  at  approxi- 
mately the  same  price  as  you  sold  for,  your  gain 
or  loss  being  practically  nothing.  In  other  words, 
you  would  obtain  sugar  at  the  market  price, 
which  is  the  purpose  in  this  kind  of  a  hedge. 

HEDGING  to  protect  a  gain  on  a  favorable  pur- 
chase of  actual  sugar. 

All  sugar  buyers  have  had  the  experience  of 
buying  actual  sugar,  only  to  see  it  advance  or 
decline  before  they  have  disposed  of  it.  How  to 
protect  the  gain,  or  minimize  the  loss,  is  described 
in  the  two  hedging  positions  which  we  now  discuss. 

Suppose  you  have  bought  sugar,  have  not 
hedged  against  it,  and  have  seen  it  advance. 
Finally  you  have  said,  "I  think  sugar  is  about  as 
high  as  it  is  going.  I  am  going  to  sell  against  that 
to  protect  that  profit." 

On  the  other  hand,  the  reverse  might  be  the 
case.  You  might  find  the  market  going  down, 
and  say,  "The  market  is  going  lower.    I  want  to 


LAMBORN      &      COMPANY 


CHART  i 


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hedge  against  that,  and  Hmit  my  loss  to  a  definite 
amount." 

In  both  of  these  cases,  the  operation  is  relative. 
If  a  man  has  a  profit,  let  lis  say  2ff  a  pound,  and 
he  hedges,  he  maintains  his  profit  of  2^  a  pound 
as  compared  with  the  market  at  the  time  of  de- 
livery, or  at  the  time  when  he  expects  to  sell  this 
sugar,  regardless  of  whether  the  market  is  higher 
or  lower. 

In  the  same  way,  conversely,  if  he  has  a  loss 
on  his  sugar  of  2^  a  pound,  by  hedging  he  can 
limit  that  loss  to  2^  a  pound,  even  though  the 
market  goes  still  lower.  In  other  words,  his  sugar 
cost  at  the  time  of  delivery,  or  at  the  time  when 
he  expects  to  sell  the  sugar,  will  be  about  2)zi  above 
the  market  price,  whether  the  market  is  higher  or 
lower. 

We  shall  assume  that  you  have  bought  from  a 
refiner  through  your  broker  a  supply  of  actual 
sugar  at  6.00.  While  your  sugar  is  in  transit  or 
before  it  has  been  shipped  by  refiners,  the  market 
advances  to  8.00,  at  which  point  it  apparently  is 
steady.  You  now  have  a  theoretical  gain  of  2.00 — 
that  is,  if  you  were  to  sell  your  sugar  at  once,  you 
would  have  an  actual  profit  of  2,00;  but  you  do 
not  sell  because  your  sugar  is  in  transit  or  you 


LAMBORN      &      COMPANY 


[21 

need  it  for  your  trade.  However,  you  do  want  to 
preserve  and  protect  this  favorable  position  of 
having  your  sugar  2.00  below  the  market  at  the 
time  you  want  to  sell  it.  So  you  sell  the  same 
quantity  of  futures  on  the  Exchange  at  8.00. 

Three  things  may  occur — the  market  may  de- 
cline, or  it  may  continue  to  advance,  or  it  may 
remain  steady.  You  have  accomplished  your 
purpose  in  any  case  (see  Chart  2). 

By  thfe  time  you  sell  your  sugar  (or  at  the  time 
of  its  delivery)  it  becomes  necessary  for  you  to 
cover  your  hedge  and  if  the  market  has  declined 
from  8.00  (at  which  point  you  hedged)  and  stands 
at  6.00  again,  your  hedging  operations  considered 
alone  would  net  you  an  actual  profit  of  2.00.  Your 
original  sugar  cost  was  6.00.  Your  profit  on  your 
hedge  was  2.00,  so  that  you  would  figure  your 
actual  sugar  cost  at  4.00.  You  would  have  accom- 
plished your  purpose  of  getting  your  sugar  2.00 
under  the  market  at  the  time  of  selling  it  (or  at 
the  time  of  its  delivery).  That  is,  your  delay  in 
selling  your  sugar  has  cost  you  practically  noth- 
ing, even  though  the  market  has  declined. 

If  the  market  has  advanced  to  10.00,  when  it 
becomes  necessary  for  you  to  cover  your  hedge 
(at    the   time  of   selling  your    sugar    or    when 


SUGAR      HEADQUARTERS 


22] 

it  is  delivered)  your  hedging  operations  con- 
sidered alone  would  net  you  a  loss  of  2.00.  You 
would  buy  in  futures  at  10.00,  which  you  sold  at 
8.00.  Your  original  sugar  cost  was  6.00,  your  loss 
on  your  hedge  was  2.00,  so  that  you  would  figure 
your  actual  sugar  cost  at  8.00.  But  the  market 
at  that  time  was  10.00,  so  that  you  have  accom- 
plished your  purpose  of  getting  your  sugar  2.00 
under  the  market  at  the  time  of  selling  it  (or  at 
the  time  of  delivery) .  In  other  words,  you  would 
make  the  same  profit  as  though  you  had  re-sold 
your  sugar  to  second-hands  originally,  instead  of 
hedging,  but  had  you  followed  this  course,  you 
might  not  have  had  sugar  in  stock  for  your  regular 
trade. 

On  the  other  hand,  when  it  becomes  necessary 
for  you  to  cover  your  hedge,  if  the  market  has 
remained  steady  and  is  again  at  8.00,  the  two 
futures  transactions  cancel  themselves  without 
profit  or  loss.  Your  original  cost  of  6.00,  there- 
fore, stands  as  your  actual  sugar  cost  at  the  time 
of  selling  (or  at  the  time  of  delivery).  This  is 
2.00  under  the  market  and  you  have  accomplished 
your  purpose. 

HEDGING  to  establish  and  limit  a  loss  on  an 
unfavorable  purchase. 

This  operation  is  identical  in  its  working  with  the 


LAMBORN      &      COMPANY 


CHART  S 


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Figure 

actual 

sugar  cost 

this  way 

Price    paid 
for     actual 
sugar      less 
hedging 

profit 

6-1-5.00 

Price    paid 
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hedging  loss 
6  +  1-7.00 

o 
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You    buy   a( 
sugar      at 
but    before 
have   receive 
(or  before  yoi 
it)  the  price 

You     now 
your     sugar 
1 .00    above 
market 

You  feel  tha 
market  may 
dine  still  fui 
and  increase 
loss,  so — 

S4] 

previous  example,  except  that  you  have  a  differ- 
ent end  in  view. 

Let  us  say  that  you  purchase  actual  sugar  at 
6.00.  If  the  market  declines  to  5.00  after  your 
original  purchase  at  6.00,  you  have  a  loss  of  1.00, 
in  the  value  of  your  sugar.  Facing  the  possibility 
of  a  further  decline  and  desiring  to  limit  this  loss 
to  1.00,  you  hedge  by  selling  futures.  In  this  case 
you  should  limit  your  loss  to  1.00  just  as  effec- 
tively as  in  the  previous  example  you  preserved 
your  gain  of  2.00,  and  by  the  same  course  of  pro- 
cedure.   (See  Chart  3.) 

By  the  time  it  is  necessary  for  you  to  cover 
your  hedge  by  buying  an  equivalent  amount  of 
futures,  the  market  may  have  declined  still  fur- 
ther, say  to  4.00.  You  sold  at  5.00,  you  bought 
at  4.00,  profit  on  that  operation,  1.00.  Subtract 
this  profit  from  your  original  cost  (6.00)  and 
figure  your  sugar  cost  at  5.00.  In  other  words, 
although  the  market  went  still  lower,  you  suc- 
ceeded in  limiting  your  loss  to  1.00,  as  compared 
with  the  market  price  at  the  time  of  the  delivery 
of  your  sugar  (or  at  the  time  you  sell  it).  Had 
you  omitted  the  hedge,  your  actual  sugar  cost 
would  have  been  6.00,  which  was  2.00  above  the 
market. 


LAM BORN      &      COMPANY 


[25 

After  your  original  purchase  at  6.00,  and  mar- 
ket decline  to  5.00  (at  which  point  you  hedged), 
the  market  might  advance  again  to  6.00,  or  re- 
main steady  at  5.00,  but  the  operation  is  no  dif- 
ferent from  that  previously  described,  and  you  in 
each  case  attain  the  same  result. 


SUGAR      HEADQUARTERS 


Buying  of  Sugar  Futures 

REFINERS  do  not  make  a  practice  of  taking 
orders  more  than  thirty  days  in  advance  of 
actual  delivery — but  there  are  obviously  times 
when  it  is  advisable  to  cover  one's  requirements 
for  a  longer  period.  A  jobber  may  do  this  on  the 
Exchange  where  he  will  always  find  a  seller  at 
some  price  for  the  quantity  he  desires. 
This  privilege  is  particularly  valuable  to: 

1.  Jobbers  who  believe  that  the  market  price 
of  Sugar  is  going  higher  and  who  desire  to 
cover  their  future  requirements  beyond  the 
delay  period  which  refiners  will  extend. 

2.  Jobbers,  who  desire  to  sell  to  manufacturing 
customers  for  future  delivery  at  a  fixed  price 
so  that  these  manufacturing  customers  may 
determine  their  selling  price,  may  do  so  by 
the  use  of  the  Exchange. 

1.    Buying  of  sugar  futures — Based  upon  the 
expectation  of  higher  prices 

No   doubt   many  jobbers   will   recall   occasions 


LAMBORN      &      COMPANY 


[27 

when  anticipating  their  requirements  seemed 
obviously  advisable,  perhaps  almost  imperative. 
Such  a  jobber  would  be  one  who  believed  in  the 
market.  His  action  would  be  based  on  his  opinion 
of  the  market.  He  might  note  in  January,  let  us 
say,  that  the  price  of  May  or  July  futures  is  favor- 
able. He  would  like  to  get  his  May  or  July  sugar 
at  about  that  figure.  You  yourself  probably  can 
recollect  many  times  in  the  past,  when  the  general 
market  was  in  such  a  strong  position  fundamen- 
tally that  anticipating  your  requirements  seemed 
advisable.  You  decided  to  buy  a  considerable 
quantity  only  to  find  that  refiners  would  not  sell 
you  to  the  extent  that  you  wished  to  purchase. 
When  covering  your  future  requirements  on  the 
Exchange,  you  can  buy  any  quantity  desired. 

Consider  also  on  how  many  occasions  when  you 
wanted  and  needed  a  definite  future  month  of 
shipment,  you  have  been  told  that  "as  soon  as 
possible"  was  the  only  acceptable  basis. 

Or  have  you  had  the  experience  of  placing  an 
order  and  waiting  twenty-four  or  thirty-six  hours 
without  knowing  if  the  refiner  would  accept  your 
order.?  Meanwhile  the  market  might  have  ad- 
vanced, and,  if  your  order  had  been  declined,  you 
would  have  had  to  pay  an  even  higher  price  for 
your  sugar.    The  facilities  of  the  exchange  offer 


SUGAR      HEADQUARTERS 


28] 

opportunities  for  protecting  requirements  quickly 
and  without  the  uncertainty  and  delay  sometimes 
encountered  from  refiners. 

A  jobber  must  anticipate  the  market  in  order 
to  take  full  advantage  of  it,  and  in  this  connection 
it  should  be  borne  in  mind  that  the  Sugar  Exchange, 
as  in  the  case  of  practically  all  exchanges,  usually 
anticipates  either  favorable  or  unfavorable  devel- 
opments in  the  market  for  the  actual  commodity. 
Consequently,  prompt  action  is  necessary  when 
either  a  higher  or  lower  market  is  expected,  as  the 
Exchange  market  will  usually  be  the  first  to  reflect 
changing  conditions. 

Suppose  you  feel  that  the  price  of  sugar  is  low 
and  probably  going  higher.  You  try  to  anticipate 
your  requirements  for  some  time  to  come,  but 
find  that  refiners  will  not  sell  for  more  than  thirty 
days. 

You  can  go  on  the  Exchange  and  buy  futures  in 
the  quantity  and  month  desired.  Assume  then, 
that  you  pay  6.00  for  your  futures.  Now,  what- 
ever happens  in  the  sugar  market,  you  know  you 
can  get  the  quantity  of  sugar  desired  at  about 
6.00  (see  Chart  4). 

The  market  will  advance,  decline  or  hold  steady. 

Say   the  market  advances.     When    it  seems 


LAMBORN   &   COMPANY 


[29 

advisable  to  close  out  your  Exchange  contract 
and  buy  actual  sugar,  the  price  may  have  gone 
up  to  8.00.  You  will  then  sell  your  futures  at 
about  8.00,  go  into  the  market  and  buy  actual 
sugar  at  the  same  price,  assuming,  of  course,  that 
the  actual  market  has  advanced  in  relative  pro- 
portion— which  is  likely.  Although  actual  sugar 
has  cost  you  2.00  more  than  you  had  figured,  you 
have  made  2.00  on  your  futures.  Profit  and  loss 
cancel  each  other.    Your  sugar  cost  is  6.00. 

On  the  other  hand,  suppose  the  market  declines 
after  you  have  bought  futures  at  6.00,  and  goes 
down  to  4.00,  when  it  seems  advisable  to  close  out 
your  Exchange  contract.  You  sell  your  futures  at 
4.00,  a  loss  of  2.00.  But  you  will  also  buy  your 
actual  sugar  at  4.00,  which  is  2,00  lower  than  you 
had  planned.  Your  actual  sugar  cost  was  there- 
fore 6.00,  which  is  the  price  you  had  figured  was 
favorable. 

If  the  price  still  is  at  6.00  when  you  desire  to 
liquidate,  you  would  sell  your  futures  and  buy 
your  actual  sugar  at  about  the  same  price.  Thus 
you  have  neither  gained  nor  lost,  but  you  have 
been  sure  of  getting  sugar  at  6.00,  which  is  the 
price  you  felt  was  low. 

The  time  to  buy  actual  sugar  is  generally  when 


SUGAR      HEADQUARTERS 


30] 

the  market  becomes  strong  and  an  advance  in  the 
price  of  the  actual  commodity  seems  imminent; 
but  the  time  to  buy  sugar  futures  is  before  the 
strength  develops.  The  future  market  invariably 
discounts  declines  and  anticipates  advances. 

2.    Buying  of  Sugar  Futures  to  protect  profits  on 
advance  sales  to  customers 

While  it  may  not  be  an  established  custom,  we 
know  numerous  instances  where  jobbers  have  sold 
sugars  in  small  quantities  for  future  delivery. 
The  examples  to  which  we  refer  are  small  manu- 
facturers buying  sugar  locally,  who,  when  the 
market  appears  in  a  strong  condition  desire  to  be 
assured  of  their  regular  supply  of  sugar  at  a  speci- 
fied price.  Under  such  conditions  we  have  known 
jobbers  to  sell  them  sugar  for  delivery  over  several 
months.  If  at  any  time  you  are  placed  in  a  similar 
position,  and  desire  to  take  care  of  your  customers 
in  this  manner,  without  incurring  too  great  a  risk, 
the  Exchange  offers  exceptional  opportunities  for 
protection,  as,  of  course,  you  would  be  able  to  buy 
sugar  for  delivery  in  any  month  you  desire,  even 
as  far  in  advance  as  one  year. 

It  is  clear  that  if  you  sell  at  a  specified  price  for 
delivery  at  a  certain  time,  your  only  protection  is 


LAMBORN     &     COMPANY 


CHART  4 


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82] 

your  belief  that  you'll  be  able  to  buy  sugar  cheaply 
enough  to  make  a  profit. 

It  is  equally  clear  that  if  a  manufacturer  names 
a  price  and  takes  advance  orders  without  pre- 
determining his  sugar  cost,  his  profit  is  a  matter  of 
guesswork.  He  is  not  going  to  know  the  cost  of  his 
manufactured  product  until  he  buys  his  sugar. 

Assume  that  you  have  contracted  to  deliver 
sugar  to  a  manufacturer  or  to  any  customer  at  a 
definite  date  and  a  specified  price,  without  buying 
sugar  to  cover  your  requirements.  If  the  price 
of  sugar  is  favorable  when  you  deliver  it,  you  are 
fortunate  and  net  a  profit.  But  sugar  may  have 
advanced  to  a  point  where  you  are  forced  to  pay 
such  a  price  that  your  profit  is  lower  than  it 
should  be.  In  fact  there  may  not  be  any  profit  at 
aU. 

By  conservative,  wise  use  of  the  Sugar  Ex- 
change, most  of  this  risk  and  uncertainty  can  be 
eliminated  and  both  you  and  your  customer  can 
go  ahead  with  your  plans  with  your  prices  deter- 
mined through  a  known  sugar  cost. 

Suppose  that  in  March  or  April,  for  example, 
the  market  appears  strong  and  you  find  that  some 
of  your  manufacturing  customers  are  anxious  to 
be  assured  of  an  adequate  supply  of  sugar  at  a 


LAMBORN     &     COMPANY 


[33 

definite  price.  In  such  a  case,  if  these  advance 
orders  called  for  a  sufficient  volume,  and  provided 
Exchange  prices  were  favorable,  you  could  take 
care  of  your  trade's  future  requirements  at  a  fixed 
price,  without  yourself  taking  a  speculative  posi- 
tion. We  also  believe  that  buyers  making  these 
arrangements  with  any  of  their  trade  would  be 
justified  in  requesting  the  same  proportionate 
marginal  protection  which  it  is  necessary  for  job- 
bers themselves  to  give  the  seller  on  the  Exchange. 
There  will  no  doubt  be  many  occasions  when  it 
would  be  worth  while  to  solicit  orders  on  this 
basis. 

With  your  own  sugar  cost  fixed  by  the  use  of  the 
Exchange,  you  could  take  proper  care  of  these 
buyers  without  worrying  about  subsequent  fluc- 
tuations of  the  market,  as  you  would  know  that 
your  sugar  cost  would  be  about  the  price  paid  for 
your  futures  which,  let  us  say,  is  6.00.  (See 
Chart  4.) 

The  market  may  advance  so  that  by  September, 
sugar  is  seUing  at  8.00.  (You  are  now  making 
deliveries  to  your  trade  as  contracted).  So  you 
sell  your  futures  at  8.00,  go  into  the  market  and 
buy  actual  sugar  for  about  the  same  figure, 
assuming,  of  course,  that  actual  sugar  has  also 
advanced  in  relative  proportion,  which  is  likely. 


SUGAR      HEADQUARTERS 


84] 

You  pay  2.00  more  for  your  actual  sugar  than  you 
had  figured  but  you  have  profited  to  the  extent 
of  2.00  on  the  sale  of  futures.  Profit  and  loss 
cancel  each  other  and  you  have  your  sugar  at 
6.00.  In  other  words,  although  the  market  is 
now  8.00  you  are  delivering  6.00  sugar  to  your  cus- 
tomers, with  a  profit  to  yourself. 

If  the  market  declines  after  your  original  pur- 
chase at  6.00  so  that  in  September  sugar  is  selling 
at  4.00,  you  will  sell  your  futures  at  4.00,  taking  a 
loss  of  2.00.  But  you  will  buy  your  actual  sugar  at 
about  4.00,  also,  which  is  2.00  lower  than  you 
planned  for.  This  gain  of  2.00,  while  not  to  be 
termed  an  actual  profit,  may  certainly  be  con- 
sidered as  canceling  the  loss  on  the  sale  of  your 
futures,  so  that  the  cost  of  your  sugar  is  really 
6.00,  your  original  price. 

Another  way  of  looking  at  this  is  to  add  the  loss 
of  2.00  on  the  sale  of  your  futures  to  4.00,  the  cost 
of  your  actual  sugar,  making  6.00,  the  price  upon 
which  you  had  based  your  plans.  If  you  had 
waited,  you  would  have  been  able  to  get  your  sugar 
for  4.00,  but  by  buying  it  ahead  you  have  had  the 
benefits  of  protection  and  the  ehmination  of  specu- 
lation and  risk. 

If  the  market  remains  steady  after  your  June 


LAMBORN     &     COMPANY 


[35 

purchase,  or  after  various  fluctuations,  returns  to 
6.00  by  September,  you  sell  your  futures  at  6.00 
and  buy  spot  sugar  for  about  the  same  amount. 
Thus  you  have  neither  gained  nor  lost,  but  you 
have  been  protected  in  your  sugar  cost. 

This  is  essentially  a  "playing-safe"  operation. 
It  results  in  profit  insurance  for  the  jobber  who  is 
wilUng  to  sacrifice  the  possibility  of  a  speculative 
gain  on  advance  sales  to  customers.  It  is  thor- 
oughly sound  business  poHcy  and  is  neither  expen- 
sive nor  difficult  to  carry  out. 


SUGAR      HEADQUARTERS 


Point  of  Delivery 

ALTHOUGH  CHICAGO  is  the  delivery  point  in  all 
Exchange  contracts  for  refined  sugar,  it 
should  be  plainly  understood  that  the  Exchange 
is  for  anyone,  anywhere.  Whether  located  in 
Chicago,  or  in  Rochester,  Baltimore,  New  York 
or  even  San  Francisco,  a  jobber  can  advanta- 
geously use  the  Exchange. 

Deliveries  of  Refined  Sugar  Futures  will  be 
made  only  from  the  Exchange-licensed  ware- 
houses in  Chicago.  But,  regardless  of  the  pros- 
pective buyer's  location,  the  delivery  point  is  not 
of  any  material  importance  as  it  is  an  established 
fact  that  in  operations  on  all  exchanges  the  per- 
centage of  actual  deliveries  taken  is  exceptionally 
small.  In  fact,  the  examples  used  in  this  booklet 
are  all  based  on  the  supposition  that  the  buyer 
may  find  it  more  convenient  not  to  take  delivery. 

The  usual  procedure  followed  in  sugar  exchange 
operations  is  for  the  buyer  to  close  out  his  ex- 


LAMBORN      &      COMPANY 


[37 

change  transaction  prior  to  the  period  calling  for 
delivery  and  purchasing  actual  sugar  from  the 
refiners,  executing  both  transactions  practically 
simultaneously. 

Possibly  the  most  important  problem  in  con- 
nection with  the  organization  of  any  commodity 
exchange  is  to  reduce  the  possibility  of  corners, 
however  remote,  to  the  smallest  possible  degree. 

In  the  case  under  discussion,  the  Chicago  de- 
livery point,  by  virtue  of  its  accessibility  for  pro- 
ducers and  consumers  from  all  parts  of  the  coun- 
try, operates  to  that  end. 

Practically  every  refiner  of  cane  sugars  in  the 
East  and  West,  as  well  as  the  Southern  refiners, 
carries  large  stocks  in  Chicago,  and  its  favorable 
location  in  connection  with  the  beet  sugar  indus- 
try also  makes  it  highly  desirable.  Its  situation 
in  regard  to  the  offerings  of  the  Louisiana  pro- 
ducers is  also  an  additional  protection  and  ad- 
vantage of  considerable  importance. 

The  Exchange-licensed  warehouses  in  Chicago 
are  under  the  direct  and  constant  supervision  of 
Exchange  representatives.  Facilities  are  pro- 
vided for  testing  and  grading  sugar  so  as  to  main- 
tain Exchange  quality  standards. 


SUGAR      HEADQUARTERS 


When  are  Refiners'  Prices  and 
Exchange  Quotations  in  Hne  ? 

SINCE  EXCHANGE  QUOTATIONS  for  refined  sugar 
futures  are  net  cash  ex-exchange-licensed  ware- 
house, Chicago,  while  refiners'  quotations  are  f  .o.b. 
refinery,  less  2%  for  cash,  it  is  obvious  that  there 
must  be  a  difference  between  refiners'  prices  and 
exchange  quotations. 

It  is  equally  obvious  that  the  differential  should 
approximate  the  freight  rate  between  Chicago 
and  the  Seaboard,  where  the  refiners  are  located, 
with  allowance  also  for  the  cash  discount.  When 
the  markets  are  in  line  such  is  the  case.  Con- 
versely, when  the  differential  is  higher  or  lower, 
the  markets  are  out  of  line. 

Therefore,  in  order  to  tell  whether  the  markets 
are  out  of  line,  or  to  what  extent,  it  is  necessary 
to  determine  on  a  differential  to  represent  the 
normal    difference    between    the    two    markets. 


LAMBORN      &      COMPANY 


[S9 

There  is  no  one  figure,  however,  that  will  satisfy 
all  conditions  at  all  times,  for  the  reason  that 
there  are  various  freight  rates  between  the  Sea- 
board and  Chicago.  It  is  inaccurate,  for  instance, 
to  use  63^  as  the  basis  for  the  normal  differential. 
The  63jif  rate  is  one  rate — the  all-rail  freight  rate 
from  New  York  to  Chicago. 

Other  important  routes  and  rates  are  as  follows : 

Routing:  Freight  Rate: 

New  Orleans — Chicago  (barge  and  rail) $0.50* 

New  York — Chicago  (rail  and  lake) .58 

New  Orleans — Chicago  (all  rail) 60 

Philadelphia — Chicago  (all  rail) 61 

New  York — Chicago  (all  rail) 63 

Savannah — Chicago  (all  rail) 63 

Boston — Chicago  (all  rail) 63 

*  The  cheapest  routing  (48c)  takes  about  two  weeks'  more  time  in  transit 
than  the  New  York  all-rail  routing  (OSc).  Interest  charges  on  finances 
involved,  etc.,  for  this  extra  period  will  bring  the  expense  of  this  routing 
to  approximately  SOc. 

After  a  study  of  the  amounts  of  sugar  shipped  over 
these  various  routes  we  have  arrived  at  an  arbi- 
trary figure  to  represent  the  normal  differential 
between  refiners'  prices  and  exchange  quotations. 
We  believe  that  57^  will  serve  as  a  safe  basis  for 
calculation,  but  58^  or  59^  might  be  equally — 
or  more — accurate.  In  fact,  anyone  is  entitled 
to  an  opinion.  51^  is  our  opinion.  It  is  not  an 
average  of  freight  rates,  but  is  an  arbitrary  figure. 


SUGAR      HEADQUARTERS 


40] 

When  the  markets  are  in  line,  using  57^  as  a 
basis  for  calculation,  2%  should  be  deducted 
from  refiners'  prices,  and  57ff  added  to  determine 
what  Exchange  quotation  should  be.  Conversely, 
57  ji  should  be  deducted  from  Exchange  quotations 
and  2%  added  to  determine  what  refiners'  prices 
should  be. 

If  you  are  willing  to  accept  57^  as  a  safe  figure, 
you  may  find  the  following  chart  useful  in  deter- 
mining the  condition  of  the  market: 

ARE  REFINERS'  PRICES  AND 
EXCHANGE  QUOTATIONS  IN  LINE? 

Based  on  a  57c  differential  and  2%  cash  discount 


When 
Refiners' 
Prices  Are 

Exchange 
Quotations 
Should  Be 

When 
Refiners' 
Prices  Are 

Exchange 
Quotations 
Should  Be 

4c 

4.49 

4.80 

5.27 

4.05 

4.54 

4.85 

5.32 

4.10 

4.59 

4.90 

5.37 

4.15 

4.64 

4.95 

5.42 

4.20 

4.69 

5.00 

5.47 

4.25 

4.73 

5.05 

5.52 

4.30 

4.78 

5.10 

5.57 

4.35 

4.83 

5.15 

5.62 

4.40 

4.88 

5.20 

5.67 

4.45 

4.93 

5.25 

5.71 

4.50 

4.98 

5.30 

5.35 

5.76 

4.55...... 

5.03 

5.81 

4.60 

5.08 

5.40 

5.86 

4.65 

5.13 

5.18 

5.45 

5.91 

4.70 

5.50 

5.96 

4.75...... 

5.22 

5.55 

6.01 

LAMBORN   &   COMPANY 


[41 


When            Exchange  When              Exchange 

Refiners'       Quotations  Refinen'        Quotations 

Prices  Are       Should  Be  Prices  Are       Should  Be 

5.60 6.06  7.15 7.58 

5.65.._ 6.11  7.20 7.63 

5.70 6.16  7.25 7.67 

5.75 6.20  7.30 7.72 

5.80 6.25  7.35 7.77 

5.85..„ 6.30  7.40 7.82 

5.90 6.35  7.45 7.87 

5.95.._ 6.40  7.50 7.92 

6.00..... 6.45  7.55 7.97 

6.05 6.50  7.60 8.02 

6.10 6.55  7.65 8.07 

6.15 6.60  7.70 8.12 

6.20. 6.65  7.75 8.16 

6.25„„ 6.69  7.80 8.21 

6.30.. 6.74  7.85 8.26 

6.35 6.79  7.90 8.31 

6.40 6.84  7.95 8.36 

6.45... 6.89  8.00 8.41 

6.50 6.94  8.05 8.46 

6.55 6.99  8.10 8.51 

6.60 7.04  8.15 8.56 

6.65 7.09  8.20 8.61 

6.70 7.14  8.25 8.65 

6.75... 7.18  8.30. 8.70 

6.80 7.23  8.35 8.75 

6.85 7.28  8.40 8.80 

6.90 7.33  8.45 8.85 

6.95 7.38  8.50 8.90 

7.00.. 7.43  8.55...„ 8.95 

7.05 7.48  8.60 9.00 

7.10 7.53  8.65 9.05 


SUGAR      HEADQUARTERS 


42] 


When 
Refiners* 
Prices  Are 

8.70 

Exchange 
Quotations 
Should  Be 

9.10 

......9.14 

9.19 

9.24 

When 
Refiners' 
Prices  Are 

9.40 

Exchange 
Quotations 
Should  Be 

9.78 

8.75 

9.45 

9.83 

8.80 

9.50 

9.88 

8.85 

9.55 

9.93 

8.90 

9.29 

9.34 

9.39 

9.44 

9.49 

9.60 

9.98 

8.95 

9.65 

10.03 

9.00 

9.70 

10.08 

9.05 

9.75 

10.12 

9.10 

9.80 

10.17 

9.15...... 

9.54 

9.59 

9.85 

10.22 

9.20 

9.90 

10.27 

9.25 

.....9.63 

9.68 

9.73 

9.95 

10.32 

9.30 

10.00 

10.37 

9.35 

(This  chart  works  both  ways.  That  is,  when  the  exchange 
quotation  is  given,  if  the  markets  are  in  line  the  refin- 
ers'  prices   should    be   as    shown   in   the   first  column.) 

It  should  be  borne  in  mind  that  the  above  calcu- 
lations are  based  upon  a  normal  difference  in  price 
of  20  j^  per  hundred  pounds  between  beet  and  cane 
sugars,  which  is  the  ruling  difference  as  quoted  in 
the  Exchange  contract.  Should  beet  refiners  elect 
to  sell  at  greater  discounts  than  20  points  under 
cane  refiners'  Seaboard  prices,  the  amount  in 
excess  of  20  points  would  have  to  be  subtracted 
from  our  arbitrary  figure  of  57^. 


LAMBORN      &      COMPANY 


The  Function  of  the  Sugar  Broker 

IF  YOU  SHOULD  ORGANIZE  your  company  so  that 
it  could  attend  to  all  the  details  of  sugar  buying 
economically,  you  would  probably  still  profit  from 
the  assistance  of  a  sugar  broker  whose  specialty  is 
sugar  buying,  whose  horizon  is  a  sugar  horizon » 
whose  thoughts  are  sugar  thoughts  and  who  must 
necessarily  know  more  about  sugar  than  the  aver- 
age buyer  would  ever  consider  it  des'rable  to 
know. 

The  sugar  broker's  service  to  you  is  unaffected 
by  prices — his  prices  and  all  other  brokers'  prices 
are  the  Exchange  prices;  his  corcmiso'ons  are 
based  on  the  same  percentages  as  all  othet  brokers' 
commissions.  His  only  distinction  can  come  from 
the  actual  service  he  can  render. 

This  service  may  be  good  or  poor,  depending 
upon  whether  his  experience,  his  organization,  his 
information  and  his  judgment  are  good  or  poor. 
If,  added  to  his  knowledge  of  sugar,  he  also 
possesses  a  broad  knowledge  of  economic  funda- 


SUGAR      HEADQUARTERS 


44] 

mentals  and  a  perspective  upon  and  contact  with 
world  activities  as  they  affect  all  phases  of  the 
business  of  sugar,  his  service  will  be  many  times 
more  valuable  than  if  he  were  limited  by  a  small 
organization,  by  a  definite  locality  or  by  experi- 
ence in  only  a  few  phases  of  this  business. 

A  sugar  broker  who  merely  accepts  and  transacts 
orders  is  giving  no  service  worth  the  name.  To 
give  service  in  accordance  with  the  highest  modern 
standards,  he  must  stand  as  an  adviser,  as  a  con- 
stant seeker  after  opportunities  which  will  benefit 
his  clients,  as  a  partner  whose  interest  in  his 
clients'  profits  and  progress  equals  his  interest 
in  his  own. 

Our  experience  has  convinced  us  that  the  client 
secures  the  greatest  amount  of  protection  in  filling 
his  sugar  needs  when  one  broker  handles  all  sugar 
transactions. 

These  exchange  operations  should  be  carried 
out  when  the  market  is  out  of  line  in  your  favor. 
You  need  the  best  kind  of  advice,  based  on  an  inti- 
mate knowledge  of  your  business. 

A  single  brokerage  house  becomes  thoroughly 
acquainted  with  the  client's  business  and  per- 
sonnel, with  the  result  that  the  two  organizations 
work  in  harmony  virtually  as  partners,  confusion 


LAMBORN   &   COMPANY 


[45 
and  misunderstandings  are  avoided,  quicker  and 
more  advantageous  transactions  are  made  pos- 
sible. 

The  choice  of  that  broker  should  be  a  matter  of 
great  care,  for  in  addition  to  the  willingness  to 
serve,  he  must  have  the  facilities  and  the  financial 
stability.  For,  bear  in  mind  that  the  broker  with 
whom  you  deal  is  the  responsible  party  for  the 
fulfillment  of  the  contract.  Your  contract  is  as 
good  only  as  the  reliability  of  your  broker. 

Lamborn  &  Company  has  become  known 
throughout  this  country  and  abroad  as  an  insti- 
tution for  the  service  of  all  those  who  have  a 
business  interest  in  sugar. 

Lamborn  Sugar  Service  is  rendered  through 
our  head  office  at  132  Front  Street,  New  York, 
and  through  branch  offices  in  Philadelphia,  Chi- 
cago, Savannah,  New  Orleans,  Kansas  City,  Mo. 
and  San  Francisco. 

Lamborn  Service  in  all  its  phases  is  available 
to  you  as  a  jobber. 

We  shall  be  very  glad  to  explain  either  in  person 
or  by  letter  what  a  brokerage  relationship  with 
us  involves,  how  it  may  be  accomplished  and  how 
transactions  may  be  carried  out. 


SUGAR      HEADQUARTERS 


LAMBORN  &  COMPANY 

Sugar  Headquarters 

132  Front  Street  :   New  York 

7  Wall  Street  :   New  York  (Securities) 

Havana  and  Cienfuegos,  Cuba  Paris,  France 

THE  LAMBORN  COMPANY    LAMBORN  &  CIE 

Branches  in  the  United  States 

Philadelphia       Savannah        New  Orleans        Chicago 

Kansas  City      San  Francisco 


Members  of: 

New  York  Coffee  &  Sugar  Exchange,  Inc. 
New  York  Stock  Exchange 
New  York  Cotton  Exchange 
New  York  Produce  Exchange 
Chicago  Board  of  Trade 
London  Produce  Clearing  House,  Ltd. 
Cable  Address :  Lamborn 


LAMBORN      &      COMPANY 


Contract  between  Members  of  the  New  York 
Coffee  and  Sugar  Exchange,  Inc. 
The  Standard  Fine  Granulated  Sugar  contract  is  as  follows; 

Sold  for to 800  bags  (of  100  lbs.  net  each) 

of  Standard  Fine  Granulated  Sugar  at cents  per  pound, 

manufactured  in  the  United  States  or  insular  possessions, 
packed  in  cotton-lined  burlap  bags,  deliverable  from  licensed 
warehouse  in   Chicago  between  the  first  and  last  days  of 

inclusive.    Delivery  within  such  time  to  be  at  Seller's 

option,  upon  seven,  eight  or  nine  days'  notice  to  the  buyer. 
If  Domestic  Beet  Standard  Fine  Granulated  Sugar  be  de- 
livered in  fulfillment  of  this  contract.  Seller  to  make  an 
allowance  of  20«f  per  100  lbs. 

The  Seller  shall  have  the  right  to  deliver  Foreign  Cane 
Standard  Fine  Granulated  Sugar  in  fulfillment  of  this  con- 
tract by  making  an  allowance  to  the  Buyer  of  25ff  per  100 
lbs.,  and  foreign  beet  standard  fine  granulated  sugar  by 
making  an  allowance  of  45c.  per  100  lbs.,  provided  such 
sugars  comply  with  the  Types  adopted  as  Standard  by  the 
New  York  Cofifee  and  Sugar  Exchange,  Inc.,  and  all  duties 
have  been  paid  thereon. 

This  contract  is  subject  to  an  adjustment  for  duty,  as 
provided  in  the  Sugar  Trade  Rules. 

Either  party  to  have  the  right  to  call  for  margins  as  the 
variations  of  the  market  for  like  deliveries  may  warrant, 
which  margins  shall  be  kept  good.  This  contract  is  made 
tja  view  of  and  in  full  accordance  with  the  By-Laws,  Rules 
and  Conditions  established  by  the  New  York  Coffee  and 
Sugar  Exchange,  Inc. 

(Written  across  the  face  is  the  following) 

For   and   in   consideration  of  one  dollar  to an  hand 

paid,  receipt  whereof  is  hereby  acknowledged....accept  this 
contract  with  all  its  stipulations  and  conditions. 


SUGAR      HEADQUARTERS 


Brokers'  Commissions 
The  broker's  commission  for  either   buying  or  selling  each 
contract  of  800  bags  of  sugar  depends  upon  the  price  at  which 
the  transaction  is  executed.     The  following  table  gives  a 
range  of  prices  and  the  corresponding  commissions: 
For  the  sale  or  purchase  of  each  lot  of  800  bags: 
Contract  Price  Commission* 

Up  to  9.99ff,      per  pound $15.00 

10^  to  12.99ff,     "       "       17.50 

13ji  to  17.99Jf,      "       "       20.00 

18jf  and  above,   "       "       25.00 

*  These  commissions  apply  to  transactions  it;  the  United  States, 
Porto  Rico  and  Cuba,  from  non-members  of  the  New  York 
Coflfee  and  Sugar  Exchange,  Inc. 

Minimum  Trading  Basis 

A  "lot"  of  refined  sugar  consists  of  800  bags  of  100  lbs.  each, 
or  80,000  lbs.  This  is  the  minimum  amount  which  can  be 
sold  on  the  Exchange. 

Delivery 

The  date  upon  which  sugar  shall  be  delivered  on  an  Exchange 
contract  is  at  the  option  of  the  seller,  provided  that  date 
come  within  the  month  named  in  the  contract.  Notice  of 
the  date  of  delivery  must  be  given  to  the  buyer  seven,  eight 
or  nine  days  preceding  the  day  on  which  delivery  will  be 
made. 

If  you  are  not  going  to  fill  your  actual  sugar  needs  by  acceptr 
ing  delivery  from  the  Exchange  warehouses,  you  should  close 
out  your  contracts  within  two  weeks,  or,  at  the  latest,  ten 
days  of  the  first  of  the  month  in  which  delivery  is  specifi«d, 
as  after  notification  of  delivery  has  been  given,  there  is 
usually  not  sufficient  time  to  make  other  plans. 


LAMBORN      &      COMPANY 


Orders 

Except  in  nearby  localities,  orders  should  be  sent  by  wire, 
addressed  to:  SUGAR  FUTURES  DEPARTMENT,  132 
Front  Street,  New  York,  N.  Y.  Inquiries  or  orders  will  be 
given  prompt  attention  at  any  of  our  oflBces,  but  time  will 
be  saved  and  execution  facilitated  if  they  are  sent  direct  to 
New  York.  Unless  otherwise  specified,  orders  are  good  only 
for  the  day  on  which  they  are  received.  If  they  cannot  be 
executed  at  the  price  named  before  the  closing  of  the 
Exchange  on  that  day,  or  if  they  should  arrive  after  the 
Exchange  closes,  it  will  be  understood  that  they  are  auto- 
matically cancelled  unless  specific  instructions  are  given  for 
the  execution  the  following  day  or  unless  formally  renewed 
by  wire.  If  you  desire  to  place  an  order,  good  until  counter- 
manded, you  can  do  so.  The  general  term  applied  to  such 
orders  is  "order  good  till  cancelled."  The  general  abbre- 
viation in  the  trade  is  G.T.C. 

Exchange  Trading  Hours 

Hours  for  trading  on  the  Exchange  are  from  IIKH)  a.m.  to 

2:50  p.m.,  except  on  Satm-days. 

Saturday  hours  are  from  10:30  a.m.  to  11:50  a.m. 

Delivery  and  Warehousing  Charges 

If  you  make  delivery  on  the  exchange,  the  following  are 
your  charges : 

Storage 3jl  per  100  lb.  bag 

Handling  in  and  out,  charged.  . 

with  first  month's  storage.  .  5>f  per  100  lb.  bag 
Negotiable  warehouse  receipt     50  ff 

If  you  accept  delivery  on  the  exchange,  your  charges  are : 
Carloading l^ff  per  100  lb.  bag 


SUGAR      HEADQUARTERS 


Acceptance  of  your  order 

The  form  of  oiu*  acceptance  of  your  order  reads  as  follows 

In  accordance  with  your  instructions  we  have  this  day  made 
the  following  transactions  in  STANDARD  FINE  GRANU- 
LATED SUGAR  for  your  account  and  risk,  subject  in  all 
respects,  and  in  accordance  with,  the  Rules,  By-Laws,  Regu- 
lations and  Customs  of  THE  NEW  YORK  COFFEE  AND 
SUGAR  EXCHANGE,  Inc.,  and  the  Rules,  Regulations  and 
Requirements  of  its  Board  of  Directors,  and  all  amendments 
that  may  be  made  thereto. 

All  transactions  made  by  us  for  your  account  contemplate 
the  actual  receipt  and  delivery  of  the  SUGAR  and  payment 
therefor. 

The  right  is  reserved  to  close  transactions  when  margins 
are  exhausted  or  nearly  so,  without  notice. 


Bags  of  Refined  Sugar 

Month  of  Delivery 

Price 

Bought 

Sold 

LAMBORN      &      COMPANY 


Raw  Sugar  Futures 

PRIOR  to  the  inauguration  of  trading  in 
Refined  Futures,  Raw  Sugar  Futures  were 
used  by  many  jobbers  for  hedging  and  protecting 
their  Refined  requirements. 

The  theory  of  operation  is  that  the  raw  price 
wdll  be  about  equivalent  to  the  refined  price  after 
duty  and  the  charge  for  refining  are  added.  While 
the  Raw  Sugar  market  will  at  times  get  out  of  line 
with  refined,  both  favorably  and  unfavorably,  this 
cannot  continue  for  any  long  period. 

When  the  Raw  Futures  market  is  favorably  out 
of  line,  it  may  be  more  to  your  advantage  to  use 
this  market,  rather  than  the  Refined  Futures 
market.  At  the  present  time  there  is  the  added 
advantage  that  the  volume  of  trading  is  greater 
in  Raw  than  in  Refined. 

When  buying  or  selhng  Raw  Sugar  Futures,  you 
may  figure  that  the  variation  on  a  minimum  lot 
of  50  tons  would  be  equivalent  to  the  same  varia- 
tion of  1120  bags  or  320  barrels. 


SUGAR      HEADQUARTERS 


52] 

We  give  you  below  herewith  details  of  contract 
and  trading  conditions : 

All  contracts  for  future  delivery  shall  be  for 
50  tons  of  2,240  pounds  each  and  multiples 
thereof. 

CONTRACTS:   Sold  for to 

...,  50  tons  of  2,240  pounds  each  of  sugar 

in  bags,  deliverable  from  licensed  warehouse  in 
the  port  of  New  York,  between  the  first  and  last 

days  of  inclusive.     The  delivery 

within  such  time  to  be  at  seller's  option,  upon  7,  8 
or  9  days'  notice  to  the  buyer.  The  sugar  to  be  of 
any  grade  or  grades  of  Raw  sugars  based  on  Cuban 
Centrifugal  of  96  degrees  average  polarization 

outturn  at  the  price  of cents  per  pound  in 

bond,  net  cash  with  additions  or  deductions  for 
other  grades  according  to  the  rates  of  the  New 
York  Coffee  and  Sugar  Exchange,  Inc.,  existing 
upon  the  afternoon  of  the  day  previous  to  the 
date  of  notice  of  delivery,  and  shall  embrace  all 
Centrifugals  first  running.  The  foreign  sugars 
deliverable  other  than  Cuban  Centrifugals,  are: 
Centrifugals  from  British  West  Indies,  Demerara, 
Surinam,  San  Domingo,  Brazil,  Peru,  Java,  Mau- 
ritius, Venezuela  and  Haiti,  all  basis  of  96  degrees 
average  polarization  outturn  at  .2512  cents  per 
pound  (difference  in  duty)  less;  but  no  lot  of  50 


LAMBORN      &      COMPANY 


[53 

tons  is  to  consist  of  sugar  from  more  than  one 
country  of  origin. 

Allowances  on  Centrifugal  sugars  to  be  .03125 
cents  per  pound  per  degree  above  96  degrees,  up 
to  98  degrees  and  ,0625  cents  per  pound  per  degree 
below  96  degrees,  down  to  94  degrees  and  .09375 
cents  per  pound  per  degree  below  94  degrees, 
down  to  92  degrees,  with  fractional  degrees  pro 
rata. 

Exchange  Trading  Hours 

Hours  for  trading  in  Raw  Sugar  Futures  are 
from  10:45  a.  m.  to  2:45  p.  m.  on  week  days  and 
from  10:15  a.  m.  to  11 :45  a.  m.  on  Saturdays. 

Trading  Differences 

A  fluctuation  of  Ic,  per  100  pounds  is  equiva- 
lent to  $11.20  per  lot  of  50  tons. 

Margins 

An  original  margin  in  New  York  funds  must 
accompany  all  orders,  we  reserving  the  right  to  call 
for  variation  margins  when  contract  shows  depre- 
ciation. We  also  reserve  the  right  to  close  transac- 
tions when  margins  are  exhausted  or  nearly  so 
without  further  notice.  The  amount  of  this 
original  margin  will  of  necessity  fluctuate  with 


SUGAR      HEADQUARTERS 


54] 

conditions  existing  at  the  time  orders  are  placed. 
At  the  present  time  in  locahties  that  are  in  posi- 
tion to  make  prompt  remittance  for  any  variation 
margins  required,  the  margin  is 


Commissions 

For  either  buying  or  selHng  each  contract 
of  50  tons 
Based  upon  a  price 

Below  4  cents... $12.50 

4  cents  to  9.99 15.00 

10  cents  to  12.99 17.50 

13  cents  to  17.99 20.00 

18  cents  and  above 25.00 

NOTE :  All  orders  for  Raw  Sugar  Futures  shall 
be  in  accordance  with  the  By-Laws  and  Rules  of 
the  New  York  Coffee  and  Sugar  Exchange,  Inc. 
and  the  New  York  Coffee  and  Sugar  Clearing 
Association,  Inc. 


LAMBORN      &      COMPANY 


UCSB   LfBRARY 


A    000  613  239     3 


